Tag: Buy a Home

Realty feels slowdown pinch

The economic slowdown, inflation and steep interest rates have been dampeners for the real estate sector. But if these conditions persist, they can work to the advantage of home buyers — especially in the National Capital Region and Mumbai where property prices have soared unreasonably high. A price correction is highly probable.

“Developers with large unsold inventories of high-end and luxury units will have to lower prices as the current run of sales through innovative marketing and offers such as the 20:80 schemes are coming to an end,” Shweta Jain, executive director of real estate consultancy Cushman and Wakefield, says. Despite lobbying with the government for incentives, developers say there isn’t much hope of these coming, at least not until the elections due next year.

As the worsening economic conditions dampened sentiments, sales of residential and commercial assets hit a slowdown resulting in unsold inventories, choking builders’ cash flows. Premium segment sales crawled. In 2012-13 things worsened. Launches and absorption of residential properties in the top seven cities plunged by 37% and 23% during FY11-FY13, aggravating the sector’s structural problems, a Knight Frank report says. “Developers were caught in a trap — of ambitious expansion, decelerating sale, hardening interest rates, and weakening cash flows,” it says. Their capacity to service debts further worsened. Fund inflow through FDI too dried up.

All this piled pressure on developers to cut prices. “There’s an undercurrent to cut prices to push sales. Developers are short of cash. But this isn’t yet visible on the ground,” CB Richard Ellis MD Anshuman Magazine explains. There’s a demand for residential property. But, other than the poor sentiments, sky-high prices are slowing sales.

A developer explains: The problem lies with the fact that only parts of projects launched in the last three to six months are sold. The remaining inventory in the same project is unsold. The developer can’t slash rates for the unsold units. If he does so, earlier buyers who purchased when the project was launched, too will ask for reduced rates.

Jain says despite poor sales, many developers are still holding on to their quoted rates and the declines over the past quarters are marginal, But “there are expectations that prices would be lowered given the mounting cash-flow problem resulting from low off-takes, mounting input costs and debt servicing.”

She says the scenario is especially true in the NCR and Mumbai where developers have launched major high-end and luxury projects. End-user driven markets in cities such as Bangalore, Chennai and Kolkata are still recording reasonably healthy transactions as projects are priced more reasonably.

The market rates are likely to be first cut by investors who buy projects for the short term. Most of them bought around one to two years ago. Since then rates have appreciated by around 20% to 30% in the NCR and Mumbai. Now, with interest rates rising and prices stagnating for at least three months, many are tempted to sell and exit.

An investor says there’s little hope of prices going up in the next one year. At the same time, he has to pay 11% interest on investment, that’s if he borrowed money or lose a like amount in opportunity cost. Prices have appreciated since he bought the property and buyers are a lot fewer. So, the only way out is in cutting price and pulling out. Even then, Magazine says, this will take a while to happen because investors are still hoping that prices will appreciate.

Builders are putting up a brave face and saying there’s no scope of a major price slash yet. “Input costs have skyrocketed in the last year and we work on low margins,” Vineet Gupta, ED, Ajanara group, says. If prices have to be shaved, there’ll be no new launches, which will affect supply and in the long term, because demand is perennial, rates will rise. Ultimately, realtors won’t be able to build by cutting losses.

Source: The Time of India

RBI flags high home prices

The Reserve Bank of India (RBI) in its Financial Stability Report for June, released on Friday, has flagged the rising house prices in most metros. This is at variance with bank credit to housing, which has actually fallen. “Growth of bank credit to this sector has, however, been moderate. Further, the share of credit to the housing sector fell to 9.5 per cent as at end March 2013 from 13.3 per cent at end April 2007,” the RBI said.

In parts of Mumbai, for example, the central bank says that there are indications that the price to annual rent ratios are as high as 50. “There is a need to closely monitor this sector,” the central bank said.

Last week, the head of a housing finance company too touched upon the high home prices in his message to shareholders. In HDFC’s 36th Annual Report, chairman Deepak Parekh observed, “Even in tier II and tier III cities, home prices are inflated.”

The NHB Residex, an index that monitors house prices in key cities has in its latest instalment pointed to this trend.

For the quarter ended March 31, house prices in 12 cities have shown an increase over the previous quarter. The Residex monitors 20 cities. The maximum increase was observed in Jaipur (28.74 per cent) followed by Bhubaneswar (14.54 per cent), followed by Pune (7.81 per cent) and Bhopal (6.49 per cent). Other cities too witnessed a marginal rise, such as Patna (0.67 per cent), Ahmedabad (0.53 per cent) and Indore (0.52 per cent).

Parekh has advocated increasing supply as the only way to reduce prices and called upon developers to cut prices. “Ultimately, developers need to recognise that in the long-run, it is to their advantage to allow a correction in prices,” Parekh said.

This view has been countered by the real estate industry. “In my opinion, there is enough supply in the market in all segments. Increase in supply is not the solution to the problem. In fact, high supply will worsen the situation further,” said Navin Raheja, president, National Real Estate Development Council (Naredco).

“Reducing prices could significantly impact sentiments in the market place. It might create panic situation in the market,” said Nishant Singhal, director-strategy, Investors Clinic Infratech, a property brokerage.

Instead developers have been attracting buyers by offering payment schemes such as 20:80 schemes and interest subvention schemes. Parekh cautions against such “teaser” offers. “To my mind, teaser products of any nature entail risks. Customers need to be cautious of ‘too-good-to-be-true’ type of products. Borrowers must not be blinkered into believing that there are no risks when developers offer to pay interest on a borrower’s loan for a specified period.”

In fact, such schemes are also on the radar of the National Housing Bank (NHB), the regulator for housing finance companies. “We are keeping a close watch on such schemes. We aim to ensure that developers do not derive undue regulatory arbitrage if lenders unknowingly or unwittingly club individual retail loans to the project loan,” said RV Verma, chairman and managing director, NHB.

Raheja pegs the increased prices on the very nature of the business with high capital costs, which escalate as approvals from various authorities take up significant period of time. Anuj Puri, chairman and country head, Jones Lang LaSalle India agrees with this view.

“The ground realities of the development business also need to be factored in. The general impression is that the high prices being quoted by builders stem purely from a profit motive. However, it is not commonly understood that builders have also been paying a lot more for developing their projects. To begin with, obtaining the 57-odd permissions for construction of a project can take as much as two years,” said Puri.

A major cost is the purchase of land, which can work out to a substantial portion of the total project cost in metro areas. Currently, developers have to resort to private financing to cover the purchase of land. The RBI has given a ‘high risk’ weight to land purchase and banks do not offer financing. The move is essentially aimed at preventing asset bubbles, which were the prime reason for the 2008 financial crisis.

Verma, however, calls for a relook into the business model that is prevalent today in the real estate sector. “Developers resort to costly financing to purchase land. It is time to take a relook at land purchase. Bringing in a special regulatory treatment for residential projects would be most favourable. If there is a mechanism for part financing of land, the lender can monitor the project from day one, which can help mitigate risk and bring in better affordability.”

The high land costs have become a major impediment to the growth of affordable housing, the sunrise sector, as Parekh observed.

“In most states, the floor area ratio (FAR), density and ground coverage norms do not support creation of affordable housing. The long approval process is another major problem. In the cities where land cost is high, this is possible only under public-private partnership. Upward revision in FAR, ground coverage and population density norms are required on priority basis,” said Raheja.

While industry players pin the rising prices on extraneous factors, the RBI has plans to monitor the sector closely by developing a set of indicators. “Indicators such as house price to household disposable income ratio, household financial obligations to household disposable income ratio, land price indices, index of construction costs, and price to rent ratio, information on ownership of houses, among other indicators need to be developed,” the RBI said.

Source: The Indian Express

DLF’s Gurgaon project hits court roadblock

Realty major DLF’s new premium high-rise residential project The Crest, off Golf Course Road in Gurgaon, is in a legal tussle.

The Punjab and Haryana high court on Wednesday stayed the project’s construction, sale and marketing on a petition filed by the resident welfare association (RWA) of DLF Park Place – a group-housing society.

The RWA alleged that The Crest has encroached on its condominium property.

The ex-parte order was passed by the division bench of justices SK Mittal and NK Sanghi.

“The Crest is coming up in the area falling within the FAR (floor area ratio) norms of the group housing – Park Place – and further any construction whatsoever except for buildings, common area and facilities for Park Place has been stayed by the court,” said Rakesh Khanna, counsel for the RWA.

A DLF spokesperson said, “We are yet to see the order. We can comment in detail only after studying it.”

According to the petitioner, The Crest, which is coming up on 8.822 acres, is on contiguous land falling within the FAR of Park Place.

RWA president Harsh Sehgal said in connivance with the planning department, DLF revised construction plans to increase the height of towers at Park Place in violation of FAR laws.

Source: Hindustan Times

Buyers protest delay in possession

As many as 50 irked home buyers on Saturday staged a sit-in outside the office of Unitech Limited Group to protest delay in possession of their flats.

The buyers were supposed to get possession of their flats in Uniworld Gardens II by 2011. But four years after the project was launched in Sector 47, the construction work is still far from over.

The housing society is supposed to have 500 flats spread over four towers.

The buyers, living across the country, connected through Facebook and planned to raise voice against the developer.

“We are fighting for our right to get our dream home on time, as was assured by the developer. We do not see getting the possession for at least the next two years as the construction is still not over,” said Pankaj Kalra, a buyer.

The buyers protested outside the realtor’s office in South City 1 after their representatives were not allowed inside the office for a meeting with Unitech executives.

“The Unitech executives had originally agreed to hold a meeting on May 11, but they postponed it to May 25. They have adopted the tactic of delaying or postponing meetings, unmindful of our plight. We are paying rent, EMIs and interest to banks,” said Anil Kumar, another buyer.

Kumar also alleged that the developer had stationed bouncers outside the office.

“Some Unitech bouncers were present there. They didn’t allow us to go inside and meet the senior executives,” he said.

The two-hour protest ended up blocking roads and creating traffic chaos in the area. The aggrieved buyers finally called off the protest after police intervened.

Source: Hindustan Times

Land buying tips for real estate investors

KOLKATA: Check the land deed twice before you buy a plot from a broker. Chances are that the deed is fake, a clone of the original, like counterfeit notes. Land deed cloning is the Ponzi firm’s latest gift to fraudulent trade in the state.

TOI has learnt that Ponzi firm owners had started the fraud with a section of Bank and land registration officials. They fake signatures and seal of the land registration authorities, thus selling the same plot to many buyers. Hundreds of complaints have poured into the Shyamal Sen commission’s office set up to probe the Saradha muddle, where many have lodged co plaints against fake land deeds, apart from asking for a refund of money. Such fake dealings in the way of multiple mortgages have also added to the bad assets of banks.

“Most of the cases involving fake or cloned documents in land deals have been reported from districts like South and North 24-Parganas and Nadia,” said Dipankar Mukherjee, secretary of the All India Bank officers’ Confederation (West Bengal state unit).

Alarmed with the situation, the state government had started to confiscate land lying with the suspicious companies. The government has started to seize land of companies that have more than 24 acre in possession.

“The trend of duping banks by forging land deeds was high in the middle of the past decade. City police have busted several rackets where fraudsters had managed to get bank loans with forged documents, and in some cases loans were obtained from different banks showing the same land or property. In several cases, probe unearthed a nexus between the fraudsters and a section of bank employees. But now, after busting several rackets, we have managed to buck the trend,” said Pallav Kanti Ghosh, joint CP (Crime), Kolkata Police.

According to bank sources, the fraudsters close land documents and sell the same piece of land to several people. “It is difficult to make out the fake from the original as those are done very meticulously. They even copy stamp of the registering authorities and signature on the original,” said a bank official.

T R Chawla, executive director of Allahabad Bank, said most of the frauds that are reported are done by individuals. “We have seen cases where documents were faked but mostly these are done by individuals, rather than any corporate entity,” he said.

Although the number of land frauds has come down after the banks in the state have started using Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI), the fraudsters have taken innovative routes to dupe people. “There is a mechanism that allows us to search if that land had already been mortgaged with any bank. But if that land is already sold to an individual and has no mortgage records, it is difficult to track it down,” Mukherjee said.

According to Deepak Narang, executive director of United Bank of India, “We have been able to contain such frauds after the banks have started using certified copies of land deeds and using CERSAI extensively.

Source: The Times of India